June 25, 2016 - 1:00 am
One of the reasons for buying a used car is you can save money because of the lower sticker price. What you should consider, though, is spending more money because it could actually save you money in the long run.
It all sounds confusing but there is a rational reason why spending more is going to be a better experience.
For this example, let’s look at two Toyota Camrys. A leading car valuation site was consulted to come up with two examples. The first is a 2005 Toyota Camry in the LE trim with a V-6 engine. It has a value of $7,297. The next is a 2011 Toyota Camry LE trim with a V-6. It has a value of $13,740.
In the past, it might have made more sense to buy the 2005 Camry. After all, it’s only 11 years old, the average age of used cars on the road, and it’s a Toyota, which has a usually good reputation for reliability, especially with its older models.
However, the second Camry is only 5 years old and that’s a real sweet spot. For just over $15,000, (because of the higher certified pre-owned price) you should be able to buy a certified pre-owned Camry. Toyota will certify a model if it is 6 years old or newer and has less than 85,000 miles.
Frankly, it’s a toss up whether you need to go the certified pre-owned route because of the extra expense. In effect, you get the remaining miles and time left on the warranty. That could be a hefty price for protection.
However, there are frequently financing deals available when buying certified pre-owned. That could make the deal more attractive. Also, certain used car segments are dropping. You might pay the same money you would have last year for a used car but now it is certified pre-owned.
Also, an important consideration to make is how old your used car is going to be in five years. The newer Camry is going to be 10 years old while the older Camry is now going to be 16 years old. It’s going to have little residual value to it, but your 10-year-old Camry is still going to have trade-in value.
Is it going to be a lot? Nope, but it should be enough to at least get you a decent down payment on your next used car. Figure the 10-year old Camry is worth about $7,000 while the 16-year old might have a value of $3,000 if all the stars align.
Is there a time you should buy the cheaper of the two used cars? Yes, when you need to take a loan longer than 60 months. You can’t afford a used car you can’t pay for in five years or less. And that’s probably because of your credit score. Buy the cheaper used car, rebuild your credit, and next time you might be able to afford a younger, more expensive used car.